The FHA and VA Appraiser: Thriving and Surviving

The FHA and VA Appraiser: Thriving and Surviving
Welcome to {Organization} The FHA and VA Appraiser: Thriving and Surviving Appraisal Basics

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Chapter 1 The FHA: An Overview
Objectives Define FHA and its programs Demonstrate an understanding of the FHA’s history and its role in society Recognize lender risk based on the program’s LTV ratio, and properties that qualify based on maximum/minimum loan amount

Terms to Remember FHA HUD Loan-to-Value Ratio Manufactured Home Mortgage

The Federal Housing Administration (FHA) Is a government agency Provides mortgage insurance on loans made by FHA-approved lenders Insures mortgages on single-family and multifamily homes, including manufactured homes Has insured mortgages on nearly 33 million properties since its inception in 1934

FHA Mortgage Insurance Provides lenders with protection in the event of default FHA will pay a claim to the lender if a default occurs Loans must meet certain requirements established by FHA to qualify for this insurance

Advantages of FHA Mortgage Insurance Easier to qualify Low down payment Lower interest rates Assistance helping buyers keep their home if they encounter hard times

FHA Funding FHA is the only government agency that operates entirely from its self-generated income Proceeds from mortgage insurance premiums are used to operate the program FHA provides significant economic stimulation to the country in the form of: Home and community development Building suppliers Tax bases Schools Additional forms of revenue

Through the Decades: A History of FHA 1934 Congress created the Federal Housing Administration 1940s FHA helped finance military housing and homes for returning veterans and their families after the war 1950s, 1960s, and 1970s FHA helped spark the production of many privately owned apartments for elderly, disabled, and lower-income Americans. In the 1970s FHA’s emergency financing kept cash-strapped properties afloat. In 1965, FHA became part of HUD

1980s FHA steadied falling home prices and made it possible for buyers to get financing when recession prompted private mortgage insurers to pull out of oil-producing states 2000 By 2001, our nation's homeownership rate had soared to an all-time high of 68 percent, and Americans are now, arguably, the best-housed people in the world

Eligibility Requirements for FHA Financing Have a valid social security number Have valid residency in the United States Be of legal age to sign on a mortgage in your state

Qualifying Requirements for FHA Financing Borrower must have sufficient income to qualify for the mortgage payment and other debts Lenders will verify income, assets, liabilities, and credit history in the process for all parties on the loan

FHA for Veterans Supplements the current VA homeownership Loan Guaranty programs through VA for: Veterans with less-than-full eligibility for a VA-guaranteed loan Veterans who are co-borrowers with someone other than a spouse Veterans whose eligibility is tied up until a loan that was assumed is paid off or the veteran is released from all liability Veterans re-using their eligibility and whose new loan under VA may have a funding fee greater than FHA’s mortgage insurance premium A qualified veteran is not required to make a down payment

FHA Maximum Mortgage Limits The National Housing Act provides that mortgage limits for any given area be set at 95% of the median house price in the area, as determined by HUD, except: The FHA mortgage limit in any given area cannot exceed 87% of the Freddie Mac loan limits or be lower than 48% of the Freddie Mac loan limit for a residence of applicable size For a complete schedule of FHA mortgage limits for specific areas:

SUMMARY The Federal Housing Administration (FHA) is a government agency that insures on loans made by approved lenders. FHA insures mortgages on single-family, multifamily and manufactured homes. Advantages of FHA loans are that the qualifying criteria for borrowers are not as strict, and the down payment requirements are less. FHA is the only government agency that operates entirely from its self-generated income, with no costs to the taxpayers.

SUMMARY 5. FHA mortgage programs do not have maximum income limits for qualifying, but borrower must qualify for the mortgage payment and other debts. 6. FHA offers programs for veterans and supplements the current VA homeownership Loan Guaranty programs through VA. 7. FHA has maximum loan amounts that cannot exceed 95% of the median house price in an area or 87% of the Freddie Mac loan limits, or be lower than 48% of the Freddie Mac loan limit for a residence of applicable size.

Discussion Point What issues regarding FHA lending have been raised throughout this chapter and which place great responsibility on the appraiser?

Discussion Point The issues raised in the chapter which place great responsibility on the appraiser should include: The volume of loans insured by FHA The risk of loss to FHA for defaulted loans, specifically due, but not limited, to: - More lenient eligibility requirements - Higher loan to value ratio (lower down payment) - The broad types of properties eligible

Chapter 2 FHA Loan Types Objectives
Differentiate between the various FHA loans available with respect to property type and requirements Understand the application of the FHA mortgage products to various properties and borrowers

Chapter 2 FHA Loan Types Terms to Remember Fannie Mae Mortgagee
Mortgagor Reverse Mortgage

Chapter 2 FHA Loan Types FHA Loan Types
203(b) Mortgage Insurance Program 203(H) Mortgage Insurance Program for Disaster Victims 255 Home Equity Conversion Mortgage Program (HECM) Reverse Mortgages for Seniors 203(k) Rehab Program 220(d)(3)(A) Urban Renewal Mortgage Insurance Program

Chapter 2 FHA Loan Types 203(b) Mortgage Insurance Program
Assists with the purchase or refinance of a principal residence.

Chapter 2 FHA Loan Types 203(H) Mortgage Insurance Program for Disaster Victims Helps victims in federally designated disaster areas get mortgages to become, or re-establish themselves as, homeowners. Used for rebuilding or purchasing another home.

Chapter 2 FHA Loan Types 255 Home Equity Conversion Mortgage Mortgages for Seniors Can be used by senior homeowners, age 62 and older, to convert the equity in their home into monthly income streams and/or a line of credit to be repaid when they no longer occupy the home.

Chapter 2 FHA Loan Types 203(k) Rehab Program
This is the primary program for rehabilitation and repair of single-family properties in either a refinance or purchase transaction.

Chapter 2 FHA Loan Types 220(d)(3)(A) Urban Renewal Mortgage Insurance Program Insures lenders against losses on mortgage loans used to rehabilitate one- to eleven-family dwellings or build new ones in redevelopment areas.

Chapter 2 FHA Loan Types Summary
A variety of FHA loans are available - all FHA lenders might not offer all FHA loan programs. The 203(b) Mortgage Insurance Program assists with the purchase or refinance of a principal residence. The 203(H) Mortgage Insurance Program for Disaster Victims is utilized when the federal government helps victims in designated disaster areas. A 255 Home Equity Conversion Mortgage Program is used by a senior homeowner to convert the equity in a home into monthly income streams and/or a line of credit.

Chapter 2 FHA Loan Types Summary
5. When using an FHA 203(k) loan, the borrower can get just one mortgage loan to finance both the purchase (or refinance) and rehabilitation. 6. The FHA 220(d)(3)(A) Urban Renewal Program is used to insure loans used to rehabilitate one- to eleven-family dwellings or build new ones in specific redevelopment areas.

Chapter 2 FHA Loan Types True or False
1. The FHA 203(k) program requires that 1- to 4-unit dwellings must be completed for 1-year. True

2. The FHA 220 program does not allow for the purchase of properties that have already been rehabilitated by a local public agency. True

3. Properties qualifying for the 255 Home Equity Conversion Mortgage can be investment property or owner occupied. False

4. The FHA 203(b) loan program allows financing for the purchase of up to a 4-unit property. True

5. A feature of the 203(h) Mortgage Insurance Program for Disaster victims is that there is no down payment required. True

Chapter 3 Becoming and Remaining an FHA Appraiser
Objectives Understand the eligibility requirements to become an FHA-approved appraiser. Correctly complete the FHA appraiser application and examination. Complete the procedure for placement on FHA’s roster, recognize reasons for removal, and understand how to remain current.

Terms to Remember FHA Appraiser FHA Appraiser Roster Mortgagee Letter

Becoming an FHA Appraiser Be a state-licensed or state-certified appraiser with credentials based on the minimum licensing/certification criteria issued by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation. Not be listed on the General Service Administration (GSA) Excluded Parties List System (EPLS), HUD’s Limited Denial of Participation List (LDP), or HUD’s Credit Alert Interactive Voice Response System (CAIVRS).

Effective February 8, 2008, the 10-question examination requirement as part of the FHA application for fee or roster designation was eliminated. On May 5, 2008 FHA launched an online appraiser application process that has replaced the use of paper applications. The application can be accessed at:

The FHA Appraiser Roster The Roster of Appraisers is maintained by HUD and lists those appraisers who have satisfied the requirements to become certified to perform FHA appraisals. Lenders underwriting FHA loans may only accept appraisals from appraisers who are on this roster. Appraisers on the FHA Roster are responsible for submitting a copy of their renewed state appraisal license or certification to HUD at the Office of Single-family Housing. Failure to submit the information in a timely manner may impact eligibility to receive assignments.

Procedure to Obtain Placement on the FHA Appraiser Roster: Generate and print the Application for Fee or Roster Personnel Designation, form HUD The form is automatically filled with the information entered on the Appraiser Roster Application page. No other information is required on the form. Sign the Application for Fee or Roster Personnel Designation, form HUD Then, scan all pages of the application into one Portable Document Format (PDF) file. Scan each state license and/or certification into a PDF file. Attach and upload the PDF files containing the scanned application and license(s)/certification(s).

FHA Roster Appraisers seeking retention or renewal on the FHA Appraiser Roster: On receipt of state license or certification renewal, appraisers should verify that FHA reflects updated license/certification information online at HUD’s Web site If certification/license renewal number or expiration date are correct online at HUD’s Web site, it is not necessary to submit a photocopy of the valid state appraiser's license/certification renewal information to HUD If certification/license renewal number or expiration date differs online at HUD’s Web site, appraiser must submit a photocopy of the current license or certification with credentials based on the minimum criteria issued by the AQB to HUD via fax or regular mail

Updating FHA Appraiser Contact Information FHA Roster Appraisers are responsible for ensuring that the contact information contained in the FHA Appraiser Roster is accurate and up to date The Appraiser Roster screen on FHA Connection allows an FHA Roster Appraiser to update or correct contact information, which includes: - Business name - Address - Telephone numbers - Facsimile - address

Some Possible Reasons for Removal from the Roster: Significant deficiencies in appraisal, including non-compliance with Civil Rights requirements regarding appraisals Losing standing as a state-certified or state-licensed appraiser due to disciplinary action in any state in which the appraiser is certified or licensed Prosecution for committing, attempting to commit, or conspiring to commit fraud, misrepresentation, or any other offense that may reflect on the appraiser’s character or integrity

Failure to perform appraisal functions in accordance with instructions and standards issued by HUD Failure to comply with any agreement made between the appraiser and HUD, or with any certification made by the appraiser Being issued a final debarment, suspension, or limited denial of participation Failure to maintain eligibility requirements for placement on the appraiser roster Failure to comply with HUD-imposed education requirements or failure to comply with such other education requirements

If an appraiser’s license in one state has expired, the appraiser will automatically be removed from the FHA Roster for that state, but will remain on the Roster for other states for which the appraiser carries a current license.

Summary To be an FHA Appraiser an appraiser must be a state-licensed/certified appraiser; and not be listed on the federal appraiser warning system. Removal from the FHA Roster could be caused by appraisal deficiencies, jurisdictional disciplinary actions, commission of criminal conduct, and failure to perform to HUD standards. Once issued, an FHA appraiser must remain active on the FHA roster and is responsible for updating contact information and license/certification renewal status.

True or False A first-time applicant for the FHA Appraiser Roster is not required to submit proof of state appraisal licensure or certification. False

True or False The certification contained in the FHA Appraiser Roster application acknowledges that the FHA roster appraiser is not an agent or employee of HUD/FHA. True

True or False An individual submitting false information in an FHA Appraiser Roster application could be subject to fines of up to $25,000 and imprisonment for up to 5 years. True

True or False Once the application for the FHA Appraiser Roster is completed by the appraiser applicant, the application and supporting documentation are mailed to the HUD office in the applicant’s jurisdiction. False

True or False FHA roster appraiser’s are responsible for monitoring the Appraisal Subcommittee’s website for accuracy of their licensing status and information. True

Chapter 4 FHA General Requirements
Objectives Identify how recent changes to FHA protocol have affected the appraisal procedure. Recognize general FHA appraisal requirements and guidelines.

Terms to Remember Mortgagee Letter Intended Use Intended User Scope of Work

Overview of Recent Changes to FHA Valuation Protocol FHA announced release of Revised Appendix D Valuation Protocol of Handbook , CHG-1, which gives guidance regarding FHA’s repair and inspection requirements for existing properties and how to use the Fannie Mae appraisal reporting forms FHA Roster Appraisers are expected to be familiar with the content of the full document The complete 139-page document is available online at:

Changes to Reporting Forms Beginning January 1, 2006, FHA adopted use of four of Fannie Mae’s revised appraisal reporting forms. Those forms are: 1. Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all 1-unit single-family dwellings 2. Manufactured Home Appraisal Report (Fannie Mae Form 1004C) for all manufactured homes. 3. Individual Condominium Unit Appraisal Report (Fannie Mae Form1073) for all individual condominium units. 4. Small Residential Income Property Appraisal Report (Fannie Mae Form 1025) for all 2- to 4-unit single-family dwellings The former VC (Valuation Conditions) addendum and Notice to Homebuyer are no longer required.

Changes to Reporting Conditions Repair Conditions FHA has shifted from its historical emphasis on the repair of minor property deficiencies. Now, only repairs for property conditions that rise above the level of cosmetic defects, minor defects, or normal wear and tear are required.

Repair Conditions FHA now permits an “as is” appraisal for existing properties that serve as security for FHA-insured mortgages when minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, do not affect the safety of the occupants or the security and soundness of the property.

Repair Conditions According to the FHA Handbook, FHA no longer requires repairs for these minor cosmetic deficiencies to bring a property into compliance with FHA minimum property requirements. Specifically: All-weather road surfaces Debris and trash in crawl spaces Poor workmanship Handrail(s) Bare floors, badly soiled carpeting, and plaster and sheetrock

The following items no longer require automatic inspections for existing properties: Wood-destroying insects/organisms Well Septic Flat and/or unobservable roof

Conditions that will continue to require automatic inspections: Standing water against the foundation and/or excessively damp basements Hazardous materials on the site or within the improvements Faulty or defective mechanical systems (electrical, plumbing, or heating) Evidence of possible structural failure (for example, settlement or a bulging foundation wall)

Conditions that require automatic repair for existing properties: Inadequate access/egress from bedrooms to exterior of home Leaking or worn out roofs (if there are three or more layers of shingles on a leaking or worn out roof, all existing shingles must be removed before re-roofing) Evidence of structural problems (such as foundation damage caused by excessive settlement) Defective paint surfaces in homes constructed prior to 1978 Defective exterior paint surfaces in homes constructed after 1978, where the finish is otherwise protected

The FHA Appraisal can be: As Is Subject to Completion per Plans and Specifications Subject to Repairs or Alterations Subject to a Required Inspection

Required repairs will be limited to necessary requirements to: • Protect the health and safety of the occupants (safety) • Protect the security of the property (security) • Correct physical deficiencies or conditions affecting structural integrity (soundness)

The appraiser must have full access to all property improvements. If unable to visually evaluate the improvements in their entirety, contact the lender and reschedule a time when a complete visual inspection can be performed.

Key General Site and Location Requirements Unacceptable Locations Site Hazards and Nuisances Soil Contamination Grading and Drainage Individual Water and Sewage Systems Private Road Access and Maintenance

Key General Requirements for the Dwelling and Improvements Roofing Mechanical Systems - Electrical - Plumbing Other Health and Safety Deficiencies Lead-based Paint Hazards

Key General Assignment Requirements The appraiser must, at a minimum: Perform a complete visual inspection of the interior and exterior Inspect the neighborhood Inspect each of the comparable sales from, at least, the street Research, verify, and analyze data from reliable public and/or private sources Report the analysis, opinions, and conclusions in this appraisal report.

Key General Assignment Requirements Intended Use: The intended use of the appraisal report is for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction Intended User : The intended user of this appraisal report is the lender/client and HUD/FHA.

Statement of Assumptions and Limiting Conditions Mirrors the language of all residential properties reported on the URAR 1004 reporting form.

Appraiser’s Signature For FHA appraisals: the only signature permitted is that of the lender-selected FHA Roster Appraiser. Supervisory signatures are not permitted.

Other Key Reporting Requirements Sketch should include gross living area above grade, including all exterior dimensions of the house. Include patios, porches, garages, breezeways, and other offsets. State “covered” or “uncovered” to indicate a roof or no roof (such as over a patio).

Other Key Reporting Requirements Subject photos should include: - Front and rear at opposite angles to show all sides of the dwelling - Any improvements with contributory value that are not captured in either the front or rear photo - Street scene photo to include a portion of the subject site If the subject property is proposed construction and the improvement has not started, the appraiser should take a photograph that shows the grade of the vacant lot

Comparable Photographs Use of MLS photos to exhibit comparable condition at the time of sale is acceptable; however, the appraiser must include his or her photos, as well, to evidence compliance with the requirement to inspect each comparable from the street.

Summary FHA has adopted the use of four of Fannie Mae’s reporting forms. The appraiser may appraise a home under construction, that is 90% or more complete, without plans and specifications. FHA only requires repairs for property conditions that rise above the level of cosmetic defects, minor defects, or normal wear and tear. The appraiser must, at a minimum, perform a complete visual inspection of the interior and exterior of the subject property, inspect the neighborhood, inspect the comparable sales from the street, research, verify, and analyze data from reliable public and/or private sources, and report his or her analysis, opinions, and conclusions in the appraisal report.

Summary 5. For FHA appraisals, the only signature permitted is that of the lender-selected FHA Appraiser. Supervisory signatures are not permitted. 6. Intended user of an FHA appraisal report is the lender/client and HUD/FHA. 7. If the appraiser is unable to visually evaluate the improvements in their entirety, the lender is to be contacted and the appraiser is to reschedule a time when a complete visual inspection can be performed.

1. FHA considers which condition to require an automatic repair? a. Poor workmanship b. Defective paint on a home built before 1978 c. Heaving sidewalks d. Leaky faucets

2. An appraisal on a dwelling that is under construction and more than 90% complete with only minor finish work remaining, is performed: As is Subject to completion Subject to repairs or alterations Subject to the appraiser’s review of plans and specifications

3. If soil contamination appears to be present, the property: Would not qualify for FHA financing Might require further analysis and testing Must have the condition removed Is appraised subject to repairs

4. An all-weather roadway is: One on which an emergency vehicle can pass in all types of weather A solid-surface road A solid-surface public road One on which all vehicles can pass in all types of weather

5. To check a plumbing system, the appraiser must: Flush toilets Turn on a representative number of faucets Check for leaks around fixtures All of the above

6. The appraiser’s certification in an FHA appraisal states: That only the lender/FHA/HUD may rely on the report That he or she has relied on the sales comparison approach That he or she has verified comparable sales with an interested party That the lender may not distribute the appraisal report

7. Front and rear photos of the subject should show: The grade of the site Accessory structures Surrounding properties Opposite sides of the structure

8. To check the electrical system of a property, the appraiser is required to: Examine the inside of the electrical service panel with the cover off Test all outlets with an electrical testing device Test a random number of switches and receptacles Turn on all electrical fixtures and appliances at once

9. In most cases, to qualify for FHA financing, the subject property: Must not have conditions that would threaten the safety and well-being of the occupants Must have a closet in every bedroom Must have handrails on all stairs All of the above

10. The subject floor plan sketch must include: Below grade finishes Interior walls Garages Accessory structures

Chapter 5 FHA Protocol for Reporting Data/One-unit Dwelling
Objectives Recognize the data that is expected to be collected for an FHA appraisal. Observe FHA protocol in reporting data.

Terms to Remember FHA Case Number Accessory Unit Accessory Dwelling Unit Census Tract Number

Section 1: Subject Key Points The FHA appraisal may not be transmitted to the lender without a case number Enter the nearest intersection if a house number is not available

Section 1: Subject Key Points If the property is vacant, the appraiser should note in the “Improvements” section whether the utilities were on or off at the time of the appraisal and condition the appraisal on a satisfactory re-inspection

Section 2: Contract Key Points FHA requires that the appraiser be provided with a complete copy of the ratified sales contract, including all addenda, for the subject property If unable to obtain this information, the appraiser is to state what efforts were made to obtain it

Section 2: Contract Key Points The “Date of Contract” is the date when all parties have agreed to the terms of, and signed, the contract The property may not be eligible for FHA financing if it involves flipping (resale in less than 90 days)

Section 3: Neighborhood Key Points Comparing houses that have been sold and resold in recent years is an effective way to determine market trends To determine the equilibrium status of supply and demand in the neighborhood, compare the number of houses sold to the number of houses listed for sale in a recent time period

Section 3:Neighborhood Key Points In addition to FHA’s requirement to state marketing time, USPAP requires the development and reporting of exposure time in market value assignments The high and low for both price and age should exclude the extreme

Section 4: Site Key Points If the shape of the site is irregular, show the boundary dimensions (85' x 150' x 195' x 250'), or attach a property survey, site plan, or plat or legal description with the comment “see attached.” Do not list site area on the dimensions line.

Section 4: Site Key Points Identify a view with a significant positive or negative influence on the value Photographs are recommended for any negative or positive view influences affecting value or marketability

Section 4: Site Key Points Public utilities do not include any community systems sponsored, owned, or operated by the developer or a private company not subject to government regulation or financial assistance The appraiser shall indicate whether a public water or sewage disposal system is available to the site

Section 5: Improvements Key Points Properties that are either proposed or under construction require plans and specifications for the appraiser to review If the property is less than one year old, include both the month and year completed Note any significant difference between the actual and effective ages and explain in the “condition of property” comments section

Section 5: Improvements Key Points The attic must be entered, at a minimum, by head and shoulders to observe the attic area for insulation, deficient materials, leaks, or readily observable evidence of significant water damage, structural problems, previous fire damage, FRT sheathing, exposed and frayed wiring, and adequate ventilation by vent, fan, or window

Section 5: Improvements Key Points Turn on the heating and/or air conditioning system to test functionality, weather permitting, and that no unusual noises are heard, no odors or smoke are emitted indicating a defective unit, etc. However, do not operate the system if doing so may damage equipment or when outside temperatures will not allow system to operate.

Section 5: Improvements Key Points Turn on the hot water to ensure that the water heater is operating appropriately View the roof from ground level to determine if the integrity of the roof is sufficient A single-lane driveway is considered to be a one-car driveway. It would be considered a two-car driveway if either car can be moved without disturbing the other.

Section 5: Improvements Key Points A dining area built as an L-shape off the kitchen may or may not be considered a room depending on the size. Hypothetically insert a wall to separate the two areas that have been built as one. If the residents can use the resulting two rooms with the same or more utility without increased inconvenience, count the room as two. If the hypothetical wall would result in a lack of utility and increased inconvenience, count the room as one.

Summary The URAR report form is used for a one-unit property for FHA. The FHA case number together with borrower and/or property information is supplied by the lender/client. The FHA case number must be included in the report. If the property is vacant, the appraiser should note whether the utilities were on or off. In the case of a sales transaction, FHA requires that the appraiser be provided with a copy of the sales contract.

Summary 5. When buyer concessions are being paid by the seller in the transaction, the appraiser is to report the dollar amount and describe the items to be paid. If the sale involves personal property it should be identified and excluded from the valuation. 6. The appraiser must clearly define the neighborhood boundaries by north, south, east, and west boundary points 7. The subject property must be personally observed by the appraiser, with any adverse conditions noted in the report. 8. An area built as an L-shape may or may not be considered a room, depending on the size.

Workgroup Activity FHA protocol… A property without a house number or street address Enter the nearest intersection if a house number is not available

Workgroup Activity FHA protocol… A special assessment for street lighting that will last for the next 10 years Report the dollar amount of special assessments for the subject property and provide a brief explanation for the assessment. If the assessment is larger than typical, the appraiser should probably discuss whether the assessment might affect marketability of the property.

Workgroup Activity FHA protocol… The seller in a sales transaction is someone other than the owner of record If the seller is not the owner of public record the appraiser must explain.

Workgroup Activity FHA protocol… Checking the central air conditioning of a property in cold-climate winter months Do not operate the system if doing so may damage equipment or when outside temperatures will not allow system to operate.

Workgroup Activity FHA protocol… A property has both vinyl siding and brick exterior materials If a combination of materials, show the predominant portion first and rate the observed condition.

Workgroup Activity FHA protocol… Description of windows - Enter window type: double hung, single hung, casement, sliders, etc., and identify the window frame material: wood, aluminum, steel, vinyl, etc. Rate the condition observed. - Describe storm sash material or state if windows are double glazed, etc., or a combination of the two. Rate the condition observed. If none, so state. - Describe style of any screens (full, half, none) and rate the condition observed.

Workgroup Activity FHA protocol… A crawl space - Access to the space should be clear. Examine the crawl space for inadequate access (minimum entry of the head and shoulders). - Check the distance from bottom of floor joists to ground. Space should be adequate for maintenance and repair. A minimum distance of 18 inches from ground to bottom of joists is highly recommended, but not mandated. - Check for insulation and ventilation, or for any structural problems. The support beams should be intact and of structural soundness.

Workgroup Activity FHA protocol… Dirt basement floor Determine whether such a property is typical for the area and is readily marketable. If so, it is not required that a concrete basement floor be installed. Mechanical equipment, however, must be located on a concrete pad.

Chapter 6 One-unit Valuation Methods for FHA
Objectives Accurately complete the valuation data sections of the URAR form. Correctly develop valuation methods according to FHA protocol. Form a credible opinion of value observing FHA guidelines.

Terms to Remember Comparable Data Pool Data Source Verification Source

Section 6: Sales Comparison Analysis Key Points Report the number of comparable properties currently offered for sale, as of the effective date of the appraisal, and the number of comparable sales in the subject neighborhood, within 12 months of the effective date of the appraisal.

Section 6: Sales Comparison Analysis Key Points Enter proximity to comparables in straight-line distance and direction. For example, "1.5 miles NE" or “3 blocks south” MLS by itself is not considered a verification source. Contacting someone with first-hand knowledge of the transaction (agent, broker, buyer, seller, etc.,) is preferred method Do not use as market data, comps that are not verified and adjusted to reflect the terms and conditions of sale

Section 6: Sales Comparison Analysis Key Points Make adjustments only if the dissimilarity has a noticeable effect on the value Report the type and amount of sales concession for each comparable sale. If none, so state.

Section 6: Sales Comparison Analysis Key Points State month and year of settlement. Showing contract date and settled date is also acceptable. Time adjustments must be supported by the market and consistent with the neighborhood market conditions noted. If this is the case, show both the contract date and settled date, as any time adjustment should be calculated using the contract date rather than the settled date. Explanation is required for any time adjustments.

Section 6: Sales Comparison Analysis Key Points Location adjustments may be warranted for factors that influence sales price, such as a busy street versus a quiet street rather than using the name of the community or subdivision.

Section 6: Sales Comparison Analysis Key Points Enter the site size in square feet or acreage If necessary, consider the possibility of excess or surplus land Describe the view from the site, i.e., similar homes, commercial area, water view, scenic view, etc. “Average” or “Good, etc.,” are only to be used as adjuncts, i.e., “Residential/Average”, “Water view/Good”.

Section 6: Sales Comparison Analysis Key Points Enter the style according to a description used by local custom. Be consistent. Enter only the actual age of the subject and each comparable sale. Floor plan (interior walls) of the subject is required when functional obsolescence is attributable to layout or poor floor plan.

Section 6: Sales Comparison Analysis Key Points Generally, adjustments should not exceed 10% for line items, 15% for net adjustments, and 25% for gross adjustments. If any adjustments exceed guidelines, an explanation must be provided for not using more similar comparable sales.

Section 6: Sales Comparison Analysis Key Points Report prior sales or transfers of the comparable sales for the year prior to the date of sale of the comparable sale For comparable data, enter the date the data was published or updated by the source

Section 7: Reconciliation Key Points The appraiser should note whether the appraisal is considered as is or subject to repairs, alterations, or required inspection conditions. More than one box may be marked, depending on the assignment and property conditions.

Section 9: Cost Approach Key Points If the subject property is new construction (less than one year old), or the cost approach is recognized in the market as a basis for pricing, the appraiser may complete the cost Approach; however, it is not required for an FHA appraisal. State the remaining economic life as a single number or as a range. This line must be completed for every FHA appraisal .

Section 10: Income Approach Key Points The income approach is not required for FHA appraisals completed on the Uniform Residential Appraisal Report, Fannie Mae Form 1004.

Summary For “Date of Sale” in the sales comparison approach, the month and year of closing is stated. Showing the contract date and settled date is also acceptable when a time adjustment is warranted for changes in market condition changes between the two events. In the sales comparison approach, the appraiser is required to report the number of comparable properties currently offered for sale, as of the effective date of the appraisal, and the number of comparable sales in the subject neighborhood, within 12 months of the effective date of the appraisal.

Summary 3. Adjustments in the sales comparison approach should not exceed 10% for line items, 15% for net adjustments, and 25% for gross adjustments. If any adjustments exceed guidelines, an explanation must be provided 4. Cost approach is meaningful if subject property is new construction (less than one year old), or if cost approach is recognized in the market as a basis for pricing. In such cases, the appraiser may complete the cost approach; however, it is not required for an FHA appraisal 5. In a single-family residential property, the income approach is generally not recognized as a basis for buying by the market. Thus, the income approach is not required for FHA appraisals completed on the URAR

True or False 1. MLS, by itself, would be considered a verification source of data. False

True or False 2. For “location,” using terms such as “corner lot” or “through street” would be acceptable. True

True or False 3. Gross adjustments, per FHA guidelines, can never exceed 25%. False

True or False 4. Comparable sales should always be researched for a prior transaction one year prior to the date of the comparable sale. True

True or False 5. More than one box may be marked in the reconciliation (as is, subject to inspection, etc.,) section depending on the assignment and property conditions. True

True or False 6. The income approach would be required by FHA if the property were a single-family investment property. False

True or False 7. When reporting the cost approach, the appraiser is to describe the method for determining physical depreciation. True

True or False 8. If the cost approach is developed, the appraiser must provide an explanation if the remaining economic life is less than 30 years. True

Chapter 7 FHA Appraisal for Other Property Types
Objectives Understand FHA expectations in the development and reporting of manufactured dwellings, condominiums, and 2- to 4-unit housing. Recognize the protocol that differs from the standards for performing an FHA appraisal of a one-unit property.

Terms to Remember Manufactured Home HUD Data Plate (Manufacturer’s Data Plate) N.A.D.A. Guide

Manufactured Homes Key Points FHA uses the Manufactured Home Appraisal Report Form 1004C A manufactured home is designed and constructed to the Federal Manufactured Home Construction and Safety Standards as evidenced by an affixed certification label Manufactured homes may also be referred to as mobile homes, sectionals, multi-sectionals, doublewides, triple-wides, or singlewides Modular housing is built to local/state codes and is not considered to be manufactured housing

Manufactured Homes Key Points To be eligible for FHA insurance, a manufactured home is: Built on or after June 15, 1976 At least 400 square feet in gross living area Built and remaining on a permanent chassis Designed to be used as a dwelling with a permanent foundation, which is designed and constructed to HUD/FHA criteria Showing a HUD Certification Label/Seal affixed to the home’s exterior

Manufactured Homes Key Points Manufactured homes must be taxed as real estate to be eligible for Title II FHA insurance If the manufactured home is new construction, does the contract price include all delivery, installation, and setup costs? Appraiser must analyze the manufacturer’s invoice or state why the analysis was not performed If the invoice is not available, the appraiser is to note the unavailability

Manufactured Homes Key Points To be eligible for FHA insurance, the finished grade level beneath a manufactured home must be at or above the 100-year flood plain To be eligible for FHA-insured financing, the manufactured home must have a HUD Certification Label affixed to the taillight end of each transportable section

Manufactured Homes Key Points Appraiser must indicate if the original manufactured home (as delivered and installed) to the site has been altered or has additions If appraiser suspects that an addition or modification to the home poses a risk to the structural integrity of the home, the appraiser is to notify the lender

Manufactured Homes Key Points If the manufactured home is less than one year old, include both the month and year completed in the report If it is more than one year old, insert the year built in the report

Manufactured Homes Key Points If available, indicate the name of the person or company that installed the manufactured home, the date of installation, and the model year of the manufactured home. If information not readily available, the appraiser is to note such.

Manufactured Homes Key Points The appraiser must inspect the underside of the manufactured home and determine if the towing hitch running gear (wheels and axels) has been removed. If not removed, or unable to determine due to lack of access, the manufactured home is not eligible for FHA-insured financing and the lender must be notified

Manufactured Homes Key Points The appraiser is only required to complete the cost approach if the manufactured home is the initial sale from manufacturer If manufactured home is more than one year old and retailer’s invoice stating the retail purchase price of the home is available, a copy of the invoice should be appended to the appraisal report If manufactured home is new construction less than one year old but title has been re-conveyed after the initial sale or if the home is more than a year old, the cost approach is not required by FHA

Manufactured Homes Key Points The income approach is not required for FHA appraisals completed on the Manufactured Home Appraisal Report, Fannie Mae Form 1004C

Individual Condominium Unit Key Points FHA uses the Individual Condominium Unit Appraisal Report Form 1073 The appraiser must accurately report the conditions observed including the overall condition of the project and quality of construction

Individual Condominium Unit Key Points The appraiser will indicate whether a single entity owns more that 10% of the total units in the project If “yes,” provide the name of the entity and the number of units owned. It is possible to have multiple entities in this category

Individual Condominium Unit Key Points Explain the results of analysis of the condominium project budget or why the analysis was not performed The analysis includes adequacy of fees and reserves to meet operating expenses, which may include legal and accounting, utilities, trash removal, snow removal, repairs and maintenance, recreational area maintenance and upkeep, gardening and yard maintenance, taxes, insurance, facility rentals, etc.

Individual Condominium Unit Key Points If there was difficulty locating comparable properties, i.e., the subject is a “high-rise” and it is the only sale within the project in the past 12 months, and one or more of the comparable properties was a “mid-rise” or “garden style,” then all such properties in the subject’s neighborhood are to be treated as comparable and counted

Small Residential Income Properties Key Points FHA uses the Small Residential Income Property Appraisal Report Form 1025 If the subject property is the sole, or one of only several, 2- to 4-unit single-family homes in the neighborhood, indicate this scarcity under market conditions, identify the most predominant housing type in the neighborhood, and address trends in value for that identified type

Small Residential Income Properties Key Points For marketing time, state the typical length of time a property similar to the subject property would have to stay on the market before being sold at a price near its market value A 2- to 4-unit dwelling with an accessory unit is ineligible for FHA financing

Small Residential Income Properties Key Points The gross living area is obtained by drawing an imaginary line on the outside perimeter walls of each unit The gross building area is the total finished area (including common areas—hallways, interior stairways, etc.,) of the improvements, above and below grade, based on exterior measurements

Small Residential Income Properties Key Points For each unit, enter the total number of rooms, the total number of bedrooms, and the total number of bathrooms Enter the total square footage of the gross living area for each unit If a unit is located in the basement but has a walkout at grade entrance, include it in the gross building area

Small Residential Income Properties Key Points For comparable rental data, the appraiser is required to report information on the subject and three comparable rental properties. Ideally, the properties used for comparable rentals will not be the same as those used in the sales comparison analysis.

Small Residential Income Properties Key Points For purposes of the income approach, the appraiser must reconcile the applicable indicated monthly market rents to provide an opinion of the market rent for each unit in the subject property There are no significant differences in the development or reporting of the cost approach from that discussed in appraising a one-unit property

Summary 1. Modular housing is built to the local/state codes and is not to be considered manufactured housing for FHA purposes. 2. Appraisers must pay particular attention to Appraiser’s Certifications of the Manufactured Home Appraisal Report (i.e., combining land sales and contract purchase price of a manufactured home, and/or experience with the property type) and the USPAP Competency Rule that addresses an appraiser’s familiarity with a specific property type.

Summary 3. To be eligible for FHA insurance, the finished grade level beneath a manufactured home must be at or above the 100-year flood plain. 4. For appraising a condominium unit, the appraiser must accurately report the conditions observed including the overall condition of the project and quality of construction. 5.The appraiser must explain the results of any analysis of the condominium project budget. If the budget was not analyzed, the appraiser should explain why the analysis was not performed.

Summary 6. A 2- to 4-unit dwelling with an accessory unit is ineligible for FHA financing. 7.The gross living area of a 2- to 4-unit property is obtained by drawing an imaginary line on the outside perimeter walls of each unit.

Summary 8. The gross building area of a 2- to 4-unit property is the total finished area (including common areas—hallways, interior stairways, etc.,) of the improvements, above and below grade, based on exterior measurements. 9. When appraising a 2- to 4-unit property, the appraiser is required to report information on the subject and three comparable rental properties. Ideally, the properties used for comparable rentals will not be the same as those used in the sales comparison analysis

1. The HUD Data Plate could be found in any of these areas except: Kitchen Utility room Outside rear section of the unit Electric service panel

2. If a small residential income property has both a conventional dwelling and a manufactured home on the site, the appraiser would need to complete the: 1004C form only 1025 form only 1025 form and the 1004C form 1025 form and portions of the 1004C form

3. In selecting comparables for a condominium unit, the appraiser has found no sales of 2-bedroom townhouse units within the past 12 months similar to the subject. The appraiser should: Select one-story 2-bedroom comparables in the subject development Select larger 3-bedroom townhouse comparables in the subject development Select superior 2-bedroom townhouse units in the subject development Consider all such properties in the subject project as comparable

4. To be eligible for FHA financing, the manufactured home must have a HUD Certification Label affixed to: The tail-light end side of each transportable section The foremost cross-member of the frame An interior location, such as the electrical panel or a kitchen cabinet The foremost axle

5. What would not be an acceptable method of describing the style of a manufactured home? One-floor Iron Trojan model Ranch Cape Cod

6. The cost approach is required for a manufactured home only if: It is new construction conveyed from the manufacturer It is less than one year old, but being re-conveyed If it is more than one year old but has never been considered as real property None of the above

7. For a 2- to 4-unit property, which would not be required to satisfy reporting protocol? Number of dishwashers Number of television cable connections Number of refrigerators Number of washer/dryers

8. The best description of a 2-unit dwelling in which one unit has a mother-in-law suite (accessory unit) is? It would be considered 3 units It would be considered 2 units, with the suite having contributory value It would be ineligible for FHA financing It would be considered only a 2-unit dwelling

9. Which statement best describes the cost approach in a condominium unit appraisal? Not required if more than one year old The appraiser could calculate the cost of the entire building and divide by the number of units Applicable if less than one year old Not applicable

10. An on-site sewage system owned and maintained by a condominium project would be: A public system, if all residents have access to it Considered a private system Unacceptable to FHA Automatically subject to inspection

Chapter 8 VA Financing and Appraisal Overview
Objectives Understand the purpose and use of a VA loan. Recognize the property qualifications criteria for a VA loan. Know the procedure for becoming a VA Fee Appraiser. Recognize the required practices and procedures for developing a VA appraisal.

Terms to Remember MPR Minimum Property Requirements RLC Regional Loan Center TAS The Appraisal System

The VA Loan Key Points VA-guaranteed loans are available through approved lenders for eligible veterans and are limited to properties that the veteran will occupy as the primary residence

The VA Loan Key Points There is no maximum loan amount for a VA loan, however there is a maximum limit of guarantee to the lender The veteran must meet income and credit qualifications Entitlement benefits may be re-used In most cases, VA loans are subject to a funding fee, rather than mortgage insurance. This amount may be financed.

The VA Loan Key Points Concessions (items are specified by VA) paid by the seller generally may not exceed 4% Some services for a purchase transaction, such as a termite or wood destroying insect inspection, must be paid by the seller In most cases, the individual lender approves VA loans Eligible properties must meet VA minimum property requirements (MPR)

Properties Eligible for VA financing Existing Construction New Construction Proposed or Under Construction Manufactured Home Classified as Real Estate Other Manufactured Homes Property to be Altered/ Improved/ Repaired

Properties Ineligible for VA Financing Properties Not Likely to Meet MPRs Location-Related Problem Condo Not Approved Ownership Not Fee Simple

VA Minimum Property Requirements (MPRs) Key Points The property must be a single, readily marketable real estate entity Any nonresidential use of the property must be subordinate to its residential use and character Each living unit must have the space necessary to assure suitable living, sleeping, cooking, and dining accommodations, and sanitary facilities

VA Minimum Property Requirements (MPRs) Key Points Mechanical systems must be safe to operate, protected from destructive elements, have reasonable future utility, durability, and economy, and have adequate capacity and quality

VA Minimum Property Requirements (MPRs) Key Points Heating must be adequate for healthful and comfortable living conditions Each unit must have domestic hot water, a continuing supply of safe and potable water for drinking and other household uses, and sanitary facilities and a safe method of sewage disposal

VA Minimum Property Requirements (MPRs) Key Points The roof covering must prevent entrance of moisture and provide reasonable future utility, durability, and economy of maintenance The crawl space must have adequate access, be clear of all debris, and be properly vented

VA Minimum Property Requirements (MPRs) Key Points Natural ventilation of structural spaces, such as attics and crawl spaces, must be provided to reduce the effect of excess heat and moisture which could cause decay and deterioration of the structure

VA Minimum Property Requirements (MPRs) Key Points Each unit must have electricity for lighting and for necessary equipment The property must be free of hazards which may adversely affect the health and safety of the occupants, the structural soundness of the dwelling and other improvements to the property, or impair the customary use and enjoyment of the property by the occupants

VA Minimum Property Requirements (MPRs) Key Points Conditions that impair the safety, sanitation, or structural soundness of the dwelling will cause the property to be unacceptable until the defects or conditions have been remedied and the probability of further damage eliminated

VA Minimum Property Requirements (MPRs) Key Points Site must be graded so it provides positive, rapid drainage away from perimeter walls of the dwelling, and prevents ponding of water on the site Appraisers must look for and report evidence of wood-destroying insect infestation, fungus growth, and dry rot in addition to any VA requirement for an inspection of the property by a wood-destroying insect inspector

VA Minimum Property Requirements (MPRs) Key Points Lead-based paint constitutes an immediate hazard that must be corrected, unless testing shows that lead is not present in the paint at a level above that permitted by law. Appraisers must: - Assume that a defective paint condition (involving cracking, scaling, chipping, peeling, or loose paint) on any interior or exterior surface of properties built prior to 1978 involves lead-based paint - Clearly identify the location of such conditions, and - Recommend correction

VA Minimum Property Requirements (MPRs) Key Points A building constructed to a property line must be separated from the adjoining building by a wall extending the full height of the building from the foundation to the roof ridge

VA Minimum Property Requirements (MPRs) Key Points No part of any residential structure may be located within a high-voltage electric transmission line easement There must be adequate space between buildings to permit maintenance of the exterior walls

Becoming a VA Appraiser Key Points Selection and appointment to VA Fee Appraiser and Inspector panels is based both on the qualifications of the applicants and the need of the RLC within the prescribed geographical areas for additional fee appraiser or inspector coverage

Becoming a VA Appraiser Key Points Appraiser Pre-requisite Requirements State licensure or certification Five years’ experience in appraising residential properties Submit two letters from appraisers attesting to the applicant's qualifications using references listed on the application. Note: At least two of the total three letters required attesting to your qualifications must be from other appraisers.

Becoming a VA Appraiser Key Points Appraiser Pre-requisite Requirements Τhere may be no conflict of interest between the applicant's employment and performance as a fee appraiser with VA Employees of HUD, Fannie Mae, Freddie Mac, or the Postal Service are ineligible Local and state government employees may be designated but care must be taken that assignments to them will not result in a conflict of interest or the appearance of a conflict of interest

Becoming a VA Appraiser Key Points Appraiser Pre-requisite Requirements Field stations will perform a search through the Credit Alert Interactive Voice Response System to determine if the applicant has any outstanding delinquent debts to the Federal Government Written tests are not required. Field stations shall require a demonstration appraisal on a Freddie Mac Form 70 or Fannie Mae Form 1004 (URAR)

VA Appraisal Requirements Key Points Every VA appraisal must meet the Uniform Standards of Professional Appraisal Practice (USPAP) reporting options of a Self-contained Appraisal Report or a Summary Appraisal Report

VA Appraisal Requirements Key Points Sales Comparison Approach - For most VA appraisals, this approach will be the primary, if not exclusive, indicator of final value Income Approach - If the appraisal involves an income-producing property (more than one living unit), the appraiser will use value estimates developed through both the income approach and the sales comparison approach in the final reconciliation Cost Approach - The appraiser is not required to provide the cost approach to value on any VA appraisal

VA Appraisal Requirements Key Points The fee appraiser assigned by VA must personally: - View the interior and exterior of the subject property and the exterior of each comparable - Select and analyze the comparables - Make the final value estimate - Sign the appraisal report as the appraiser

VA Appraisal Fees and Payment Issues Key Points Maximum fees for VA Appraisals and Inspections are established by each VA Regional Loan Center for its area When a particular requester has been consistently untimely in paying appraisal fees, the appraiser may contact the RLC and VA will assist in the collection of the fee

Quality Control and Standards Key Points All appraisal reports are reviewed for both work quality and timeliness - A substantive negative work quality finding will generally be assessed where VA has determined that the fee appraiser made a serious error of fact or methodology - A non-substantive finding is generally one in which VA has determined that the fee appraiser made a relatively minor error of fact or methodology

Quality Control and Standards Key Points Documented negative timeliness or quality findings can form the basis for administrative action by VA against a Fee Appraiser

Summary 1. VA loans were first offered in 1944 as a provision of the GI Bill of Rights. The purpose of the lending program was to provide veterans with a mortgage loan guaranteed by the federal government with no down payment. 2. Several property types qualify for VA financing, however the veteran must occupy at least part of any property that is either mixed in use or of more than one unit. 3. To qualify to become a VA Fee Appraiser, the appraiser must be licensed or certified by the state and have at least five years of residential appraisal experience.

Summary 4. No examination is required to become a VA Fee Appraiser, however the applicant must have three reference letters, two of which must be from other appraisers. 5. VA has specific appraisal development and reporting requirements, which may require invoking the Jurisdictional Exception Rule or the Supplemental Standards Rule of USPAP. 6. The primary method of determining value in most VA appraisal assignments is the sales comparison approach. The appraiser is not required to develop or report the cost approach to value in any VA appraisal.

Summary 7. The Fee Appraiser assigned by VA must personally view the interior and exterior of the subject property and the exterior of each comparable; select and analyze the comparables, and make the final value estimate; and sign the appraisal report as the appraiser. Assistants are not permitted to perform these functions. 8. All appraisal reports are reviewed for both work quality and timeliness. Non-acceptable quality or timeliness findings in any appraisal will be classified as Negative Work Quality Findings or Negative Timeliness Findings. All Negative Work Quality Findings are further categorized according to their significance into Substantive or Non-Substantive Findings. 9. Maximum fees for VA Appraisals and Inspections are established by each VA Regional Loan Center for its area of jurisdiction.

True or False Any of the reporting options specified by USPAP (self-contained, summary, restricted-use) may be chosen by the appraiser for reporting a VA appraisal. False

True or False 2. In order for a condominium to qualify for VA financing, a condominium project must be approved by VA. True

True or False 3. An un-vented space heater or fireplace will automatically disqualify the property from VA Financing. False

True or False 4. The subject’s opinion of value and the gross living area should be bracketed by the comparables. True

True or False 5. The purpose of a VA loan is to offer a financing avenue to qualified veterans, which is insured by the federal government. False

True or False 6. Having a bad attitude with a VA lender may lead to administrative action. True

True or False 7. Additional comparables are necessitated when any of the comparable sales exceed 6 months. False

True or False 8. VA Fee Appraisers must notify the VA office jurisdiction seven days in advance of going on vacation. True

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The FHA and VA Appraiser: Thriving and Surviving

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